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As long-term prospects start to look upbeat, retail formats such as furnishings, lifestyle apparel, fitness, electronics and accessories are set to see growth

With the market slowing down in the beginning of the year 2009, retailers were forced to offer discounts, sales and special in-store promotions to maintain sales volumes. As a result of these factors and a surge in supply of new shopping centre space, the market changed from one favoring landlords to one where tenants’ negotiation power grew significantly.

During the course of the last year, rental levels fell substantially from the highs reached in 2007 and 2008.
In addition, lease terms have become more favorable to the lessee, says a report titled India Retail Market View published by real estate consultancy CB Richard Ellis.

Retailers have become more cautious in their approach towards retail markets and are increasingly looking at footfalls, tenant mix and conversion rates before committing to renting retail spaces. Additionally, developers have become more understanding of the tenant’s needs, and are willing to offer more flexible lease terms to ensure higher occupancy. A downsized Minimum Guarantee (MG) coupled with revenue share has rapidly become a norm for retail establishments.
This flexibility has allowed retailers to reassess their positions and develop their brands in specific retail micro markets, says the report.

Further, many mall owners are organizing regular events, such as night bazaars, concerts and promotions to ensure regular and sustained footfalls. In the past few months, retail realty has slowly but surely started finding its feet again.
Despite the economic slowdown, medium to long-term prospects for the domestic economy appear increasingly optimistic. While almost all retailers have adjusted their expansion plans to suit current market conditions, and a few have rationalized their store portfolio, no major retailers have had to downsize significantly. The flexible approach taken by landlords -deep rental discounts and other inducements to keep stores open and trading within their schemes -has helped retailers.

For 2010, a positive trend in consumer spending is expected. It is also expected that the new trend of power sharing between the landlords and tenants to become balanced at a point that enables both sides to work together to ensure that shopping centers and high street locations succeed.

National Capital Region: The National Capital Region (NCR) continues to command its preferred destination status for retailers looking to venture into India.
Rentals in Grade A retail spaces witnessed minor corrections and have since been moving towards stability.
Meanwhile, secondary retail pockets posted sizeable corrections over the past few quarters. The slowdown saw most malls footing the bulk of the bill, amounting to nearly 40 per cent value erosion. Meanwhile, high streets observed a 20-25 per cent drop in rental values.

Prime retail spaces continued to be in demand, with retail activity remaining focused around South and Central Delhi. Key international brands like Hagen Dazs and Zara are looking to make their market entry in the coming months with outlets in Saket District Centre and Vasant Kunj mall clusters. Meanwhile, players like Estee Lauder and Alcott have already become operational. Luxury brands like DKNY and Versace have also opened their flagship stores at DLF Emporia, India’s first luxury mall, at Vasant Kunj.

Khan Market, one of Asia’s most expensive retail destinations, continues to hold forth with the mushrooming of several eateries, designer boutiques and international brands like L’Occitane and Celio. A clear trend that is emerging is the rise in share of food and beverage players actively acquiring retail spaces. The preference of the end consumer has shifted to affordable eating places, triggering a climb in the number of quick service restaurants, as is evident by KFC’s rapid expansion. With long-term prospects looking upbeat, retailers with formats, such as lifestyle apparel, furnishing, fitness, electronics, accessories etc.
are contemplating their market entry, or expansion.
Rental trends Rentals in Delhi NCR have corrected further by approximately 10-15 per cent over the levels witnessed in the first half of last year; an overall drop of 20-30 per cent from the levels observed at the beginning of that year. Also, an increasing number of retailers and developers are taking the Minimum Guarantee (MG) and Revenue Share route to partner each other’s success.
Outlook for the year The current period may be looked at as one moving out of flux and towards stabilization. There is significant activity in the sector, but retailers are also watchful and judicious of the specific micro markets and retail hubs.

The outlook remains optimistic in the long term as new international brands evaluate their entry in the Indian retail market. Prime high streets and malls may continue to dominate retailer mind space with limited availability and increasingly rational commercial terms.

Secondary markets should witness further corrections in rental values with decreased demand and the availability of better real estate options. New and planned mall developments may remain on hold until the demand scenario becomes clearer.

Mumbai and Bangalore: The next year seems promising both for retailers and developers in these cities because merchants have chalked out innovative models, both in terms of reduced store sizes as well as financial models that ensure long term sustainability.
Developers are looking to complete projects that have been on hold and entering new markets in Tier II cities where there is a demand and potential for growth of organised retail.

Chennai: The year ahead holds promise for the retail industry with new and existing retailers evaluating the city for expansion.
Established retail locations, such as Nungambakkam, Anna Nagar, Anna Salai and RK Salai, have already seeing demand. This trend is gradually expected to spread over to other micro markets like ECR, OMR and Velachery with the development of residential areas.

Major developers like Prestige, Phoenix Mills and Aerens Gold Souk have already commenced work on malls they had announced some time back. These are expected to be operational in the coming years.

Kolkata: The mediumto long-term horizon promises to be retailer centric with an influx of new mall supply and retail developments at both prime and suburban locations. With further political liberalisation and infrastructural development, demand for organized retail will increase. The retailers’ and developers’ efforts would be directed towards achieving mutually beneficial business models, which should be favorable for sustainability of business.

Occupancy levels may increase across malls and high streets keeping the above purview in mind.

Courtesy:HT Estates dt:06-March-2010

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